The Investment Dealers Association of Canada has published rule proposals for comment that seek to implement the core principles of the so-called Client Relationship Model (CRM), a new way of governing the relationship between retail clients and their brokers.

The CRM is an adaptation of the Fair Dealing Model, which was proposed in a concept paper issued by the Ontario Securities Commission back in January 2004. It focuses on improving transparency in the relationship.

The new model’s core principles are: clarity and transparency of the account relationship entered into between the client, the adviser and the dealer; transparency of the account costs to be borne by the client; transparency of conflicts that the adviser and the dealer must manage in order to put the client’s interests first; transparency of account performance and the risks borne to achieve that performance; and, that client communication should be in plain language.

The notice from the IDA indicates that there are a number of current IDA rules that relate to the CRM core principles, but there are no current rules that mandate that clients be informed of the essential features of the account relationship they’ve entered into and the account performance/risk they are receiving/incurring.

“The concern with the current rules is that they focus more on regulating the activities of the adviser and the member than on setting account relationship and service disclosure standards to be met by the advisor and the member in communicating with their retail clients,” it says. “As a result, the current account agreements and account opening documents tend to focus on the rights of the parties under the account agreement rather than describing the account relationship that has been entered into and the services that are to be provided.”

“Disclosure of the details of the account relationship and the services to be provided are necessary to better inform the client of the nature of their account relationship as well as equip them to monitor whether their account performance is satisfactory (in relation to the risks they are assuming),” it adds.

The rule proposals would impose new requirements regarding relationship disclosure; and, account performance reporting. They would also revise existing requirements concerning account cost disclosure; conflict resolution and disclosure; and, retail client suitability.

The proposals are out for a 30-day comment period.